Wednesday 16 February 2011

Guilty Until Proven Innocent



Grant Thornton have published a salutary warning about what happens if you ignore letters from HMRC.

"It is a salutary reminder that HMRC's powers and case law means that taxpayers could be deemed guilty before proven innocent. It is vitally important not to ignore any HMRC correspondence, ensure that deadlines, particularly for appeals..."

Here is the article in full from Grant Thornton's site:

"As tempting as it may be to stuff unopened HM Revenue & Customs (HMRC) envelopes down the sofa or behind the clock, details of a recent tax tribunal decision may change your mind. This is a real horror story of HMRC turning a £3,000 initial risk into a £275,000 problem and the possibility of bankruptcy.

The tax tribunal published the outcome of a hearing at the end of 2010 that may send shivers down the spine of anyone putting off their correspondence from HMRC.

This case was heard in Manchester and the taxpayer, Robert Legg (tax tribunals are not held in private), appeared in person without any professional adviser. He had applied to the tribunal for permission to appeal out of time against an HMRC assessment issued in November 2008 and a tax investigation enquiry closure notice issued in June 2009. His appeals to HMRC were submitted in May 2010 and rejected for being out of time.

That may sound very ordinary on the surface, but HMRC had turned the information that he was party to a bank account, which had interest credited of about £3,000, into a £274,355.73 tax problem.

It was only when Legg received a statutory demand for this amount in October 2009 that he was prompted to do anything. Initially he tried to get this set aside and bankruptcy proceedings were ultimately stopped pending the outcome of the tribunal’s decision.

How did £3,000 bank interest become a £0.275 million tax problem?

After opening an enquiry in March 2007 into Legg’s 2003-04 tax return HMRC sent him five or six letters asking for details of the source of the £3,000 funds – but he failed to reply. HMRC then made various assumptions based on that figure.

HMRC assumed that Mr Legg must have had funds of £250,000 to generate £3,000 interest. That £250,000 was regarded by HMRC as further undisclosed income and the tax due on this extra income came to £96,725 for one tax year. HMRC appears to have estimated a similar amount for the year after and together with interest and penalties the amount due mushroomed to £274,355.73. But it could have been even worse.

HMRC could have used its formal powers to allege fraud and raise further assessments going back up to 20 tax years – see my previous post, Beware the time-travelling taxman.

Surely it was just a joke?

During initial telephone calls to HMRC Mr Legg claimed that the information had been supplied to HMRC maliciously. He made allegations against his former wife’s solicitor and even the Inspector of Taxes but he failed to explain anything about the original source of the funds. He also contended that he took no action against the original assessments because he felt he didn’t owe any money and that it was all a ‘Jeremy Beadle’ type joke. He claimed that he didn’t have any bank accounts after the year 2000 and didn’t know if his wife’s account was the source of the £3,000.

Tribunal’s decision

The standard time limit to make an appeal is 30 days, but Legg waited 17 months after the original assessment was issued by HMRC before making an appeal. In the absence of any convincing answers and his poor credibility at the tribunal, the judge decided that the tribunal could not allow the late appeals. It is not known whether or not Legg has sought permission to appeal against this decision so we may yet hear more from this in the Upper Tribunal.

It is a salutary reminder that HMRC’s powers and case law means that taxpayers could be deemed guilty before proven innocent. It is vitally important not to ignore any HMRC correspondence, ensure that deadlines, particularly for appeals, are not missed and to seek professional guidance if you are unsure of your rights.
"

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22 comments:

  1. Thats right, dont ignore any of their letters.
    (Even though they lose or mix up Tax payers letters all the time).

    But also-Appeal Appeal Appeal any of their decisions!!
    Get your request down in writing becuase the calculation errors, the guidance confusion, the loss of experienced Tax inspectors, low morale, means that its more than likely HMRC that have got it wrong and not you.
    Ive seen it so many times at VAT Tribunals.

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  2. All this assumes that HMRC even post out notices before the final date for compliance!

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  3. You need to record all calls with HMRC as well.

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  4. I agree with 12:21 and would add that everyone has the right under the Data Protection Act to obtain copies of all personal information HMRC holds on them. That will include transcripts of any telephone conversations.
    Use this legislation to its fullest extent to find out what HMRC know about you. Recording telephone conversations is a 2 edged sword and usually provides good evidence of incompetence by those ignorant or lazy HMRC staff you are forced to deal with.

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  5. OK, let's see if I've got this right:

    HMRC staff, in pursuance of what the law requires them to do, ask an individual for information. He doesn't respond.

    Again acting in accordance with the law, HMRC staff make a reasonable assumption on the basis of what evidence they were able to collect. They inform the individual of this decision. He takes no action.

    Then finally, when it begins to dawn on the individual that his indolence has landed him in a big pile of poo, he makes a series of allegations about other people, none of which he is able to substantiate. When this doesn't work, he then demands special treatment.

    Suddenly this is all the fault of HMRC 'abusing' their powers, deeming people to be 'guilty until proven innocent', and other such yappings from the Norris McWhirter Memorial Institute For Libertarian Paranoia.

    He had the means to forestall the consequences if he had only had the sense to respond to HMRC's enquiries in the first place. That does not seem to have stopped the usual suspects on this site from claiming that it's all a nasty conspiracy against The Little Man (TM).

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  6. This bloke's story reminds me of OJ Simpson.
    I was just out for a drive, didn't realise the 60 cop cars with sirens blaring behind me for 5 hours were asking for ME to stop. Then they have the nerve to get me done for resisting arrest?

    Seriously how anyone can empathise with this story beggars belief.

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  7. 19:44

    I find it amazing why anyone would defend an organisation that is disorganised to the extreme and failing on just about every front. The fact that you do feel the need shows you are working in the right place and should have a long career there.

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  8. "He had the means to forestall the consequences if he had only had the sense to respond to HMRC's enquiries in the first place".

    You cant be serious.

    HMRC lost the child benefit details of millions of people of this country. They lose taxpayers details all the time-Faxes, emails, letters. Mail lies unopened.
    Something like nearly half of calls to their Contact Centres go unanswered.

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  9. 16 February 2011 20:21

    Careful, you will upset the poster @ 19:44.

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  10. Bloke sounds like a complete tool. Still, gotta be HMRC's fault, cos of the lost discs,innit.

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  11. Guilty when proven dishonest.

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  12. 20:11

    I don't need to be told that the organisation is in a shambles - yes, I do work there, and I know that the vast majority of frontline staff are conscientious and try to be professional within the limits placed upon them by the quarter-wits who manage the department.

    20:21

    What the hell has losing those discs, etc. got to do with this? The Compliance staff were doing exactly what their professional duties required of them.

    20:27

    I'm hoppin' mad, I tell yez!

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  13. The taxpayer was wrong in ignoring the letters but in my view HMRC either by abuse of their powers or incompetence 'calculated' a £3000 interest payment into a bank account as 'evidence' of income of £250,000.
    The real problem with this is HMRC appears to consider they are above the law and it cannot be challenged to prove this 'debt'.
    It is a similar story with all the 'concessions' under which operate. Thay are unchallegable being not based on legislation or case law, merely the whim of HMRC policy makers.
    From recent posts it seems HMRC also have a propagander deivision tasked with watching Ken's site and posting HMRC's preferred line on issues raised.

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  14. I think this one just highlights the usual problem with HMRC.

    If you ignore their letters you end up with more problems. If you respond, they ignore (they probably call it "heavy workload") your letters and you still end up with problems.

    Maybe the european court of human rights should look into this one.

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  15. "From recent posts it seems HMRC also have a propagander deivision tasked with watching Ken's site and posting HMRC's preferred line on issues raised."

    They are to arrogant for that.

    Even in an organisation that has clearly failed there is always going to be people who will defend it to the end.

    My guess would be that they are lower end management and are actually causing a lot of the problems within the organisation because of their lack of skill. Let's face it, if you are part of the problem you probably don't agree there is a problem.

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  16. I work for HMRC. Am a junior grade, not part of management at any level. Have posted about HMRC incompetence here in the past, and put a few good bits Kens way. However, also interested in seeing the FACTS posted. Can also spell propaganda...

    Can someone here please explain why HMRC are at fault IN THIS CASE. ( Without reference to discs,contact centres et al)

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  17. 17 February 2011 10:25

    I'm surprised you dont get this.
    I worked as a junior grade for a number of years before leaving.
    The original post emphasises the danger of ignoring communication from HMRC, the example being a £3,000 risk becoming a £275,000 problem.
    I think some of the earlier comments, are just highlighting the irony of this when so many people DO try to correspond with HMRC but to no avail.
    This could be written correspondence, but HMRC has tons of mail unopened in England, Wales, Scotland and N.Ireland. Or by telephone or trying to telephone the incredible mess of the Contact Centres. Some people pefer to talk about HMRC Correspondence by phone and thats up to them. Some taxpayers or their reps prefer to correspond through Fax. I used to sit beside a Fax machine that ran dry of ink. The beaucracy in ordering a new Cartlidge meant the fax didnt work for a month. So when it was replaced the machine was like the jackpot with all the late deadlined passed faxes.

    Im not saying Joe Bloggs who didnt bother to open his clearly marked HMRC Letters time after time should be given an Ice Cream but HMRC have a f*****g cheek when it comes to communication.

    Are you getting it now.

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  18. for goodness sake. He should have just typed up a letter - backdated it and told them he sent it. End of. HMRC are so incompetent (chucking letters in the bin etc), he would have been given the benefit of doubt in the Tribunal. Anyway, he can appeal his arse off now.

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  19. 'Guilty until proven innocent'?

    I would suggest a more balanced title for this entry would be:

    'Ignore five or six chances to explain innocence, ignore charge of guilt, threat of punishment loosens bowels but not enough to get appeal in on time, bleats.'

    What do you suggest HMRC should have done in this case? 'Mr X hasn't replied to our letters for 3 years and could owe us a lot of money. We ought to try to collect that but a few years ago someone lost some discs and another part of the organisation has a backlog of work so we'll let him off, the country can afford it, we're rolling in it at the moment.'

    Like the previous post about the 'bailiff' this isn't something to beat HMRC about. And I'm not defending HMRC before you all get your panties in a bunch either, just pointing out that spitting fire over things that might not even be HMRCs fault (bailiff) or HMRC actually trying to do their job (this one) weakens your overall position.

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  20. @ 21:08

    HMRC should pick and choose which legislation to apply so that we can criticise them for not carrying out the will of parliament and picking and choosing whether or not to apply legislation.

    Then when criminals evade tax or steal millions from the public all they have to do is ignore HMRC and we can all live happily ever after.

    If you are not criticising them you must be part of the conspiracy.

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  21. to all the good people out there this case has now been dismissed as a total scam by hmrc.to all the baddies get a life no doubt you will stick your snout in something else.

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  22. 08.32,

    What do you mean? Has the upper tribunal heard the case? Do you have a web link?

    Stew G

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